Rising Mortgage Rates Are Grinding Down Home Prices, Slowly

By: James Flippin · September 28, 2022 · Reading Time: 3 minutes

Cool for the Summer

The latest real estate data suggests the unprecedented rise in home values over the last couple of years could finally be slowing. According to the S&P CoreLogic Case-Shiller US National Home Price Index, home prices rose 15.8% in July. That’s clearly not welcome news for would-be homebuyers, but it’s also a smaller advance compared to June’s 18.1% year-over-year jump.

Taking the glass half-full approach, the 2.3% difference between the two months is the largest deceleration ever recorded by the index. That slower pace of growth was also backed up by the monthly change. From June, home prices fell 0.2%, marking the first month-over-month decrease for the index in over a decade.

A separate datapoint provided some encouragement to would-be buyers. The FHFA House Price Index, which tracks how single-family home values change over time, showed prices rose 13.9% year-over-year in July – that’s down 0.6% from the annual pace recorded in June.

Borrowing Cost Bump Down

Industry analysts point to one major factor when attempting to explain these cooling prices: rising mortgage rates. The average rate on a 30-year fixed mortgage in July was roughly double what it was in 2021 at the same time period.

Mortgage rates are rising as a result of the Fed’s tightening monetary policy, which aims to address inflation. By upping its target rate, the central bank influences what banks and lending institutions charge each other to borrow money, which then tends to carry over to auto loans and mortgages.

Because mortgages are effectively more expensive now, some would-be homebuyers are being forced to the sidelines. Many have chosen to rent instead of buy, which has affected asking rents in apartments. Home price appreciation peaked in April, per some industry observers, and now it’s slowly taking a step back.

Advantage: Buyers?

It’s most definitely been a seller’s market throughout the pandemic. There’s been a general trend of people moving from cities to suburbs and bidding wars ensued as housing stock diminished.

There’s some indication that the power dynamic is shifting. According to, two in ten listed homes had cut their asking price in August. That’s reminiscent of 2017’s levels, which was a more balanced housing market. And because mortgage rates are higher, fewer people qualify, meaning there are fewer potential buyers, and thus less competition.

That said, any potential homebuyer should be aware of what’s happening with the rates and take that into consideration. With the Fed focused on fighting inflation, mortgage costs could keep rising even if home prices fall.

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